Articles Posted inTariff evasion

According to a report released earlier this month, U.S. companies are increasingly shifting imports from China to countries like Vietnam, South Korea, Mexico, and Taiwan, in an effort to avoid the high tariffs imposed on Chinese purchases during the current trade war.

With the current trade war waged on China, President Donald Trump has imposed tariffs of up to 25% on the purchase of Chinese products. This dramatically increases the overall costs that U.S. companies are looking to spend, causing them to search for new alternatives. According to S&P Global Market Intelligence, the number of containerized freight imported from China fell 6.4% in the first corner. In order to avoid paying the high tariffs, U.S. companies have rerouted the majority of their purchases to less expensive countries. However, many companies also chose to order mass purchases from China ahead of the tariff increases in an effort to stockpile their products.

Many of the companies choosing to reroute their imports are associated with the furniture industry, but these are not the only markets struggling to avoid tariffs. While large furniture retailers, like Home Depot and Target, decreased Chinese imports by up to 13.5%, appliance retailers like Samsung and LG were also part of a major shift in Chinese imports.

Security vendor Fortinet has agreed to pay the equivalent of $545,000 to settle allegations it illegally sold the U.S. military Chinese technology disguised as American-made equipment, the U.S. Department of Justice announced.

The Sunnyvale, California-based cybersecurity company agreed to pay the government $400,000and provide the U.S. Marine Corps with equipment valued at $145,000 to resolve charges it violated the False Claims Act from January 2009 until the fall of 2016, according to a statement.

Fortinet acknowledged that an employee responsible for supply chain management altered labels on products to make them appear compliant with the Trade Agreements Act, a law prohibiting federal agencies from acquiring products in specific countries. The unnamed employee directed others at Fortinet to include the phrases “Designed in the United States and Canada” or “Assembled in the United States” before those products were sold to distributors and resellers who resold the technology to the government.

U.S. Customs and Border Protection is taking more action to stop China’s evasion of our antidumping law and the duties they are supposed to pay on goods being imported into the United States. The most recent efforts involve the duties on hardwood plywood products imported from China. In addition a recent CBP’s twitter feed mentioned the agencies efforts to stop merchandise misclassified as ready-to-assemble kitchen cabinetry instead of the hardwood plywood panels actually contained in the cargo. According to Customs representatives, China’s evasions fall into three categories: misclassification — misclassifying entries as something that’s not subject to AD/CVD; undervaluation — undervaluing the entry so as to not pay the right amount of duties; and trans-shipments — hiding/misidentifying the country of origin on the shipment.

The hardwood plywood import issue dates back to 2012 when the Coalition for Fair Trade of Hardwood Plywood filed an unfair trade petition against China for “products sold in the United States at dumped prices.” The petition was opposed by the American Alliance of Hardwood Plywood, which claimed the countervailing ruling would not only penalize jobs, but “severely damage American industries that depend on this unique hardwood plywood.” In late 2017, the Department of Commerce and International Trade Administration determined that the domestic industry was materially injured by the lower-cost, subsidized Chinese imports.

According to an investigative report in the Wall Street Journal, the heavy tariffs imposed on Chinese goods has resulted in a large increase in tariff evasion schemes by Chinese companies seeking to sell their goods here. Customs officials, importers and shipping brokers say that the tariff increases are being countered by unscrupulous Chinese manufacturers who are fraudulently shipping products here under false manufacturers codes and through trans-shipping and falsifying the actual country of origin, according to the Wall Street Journal. The result is that the tariffs are failing to protect. The tariff evasion using fraudulent product codes relates to 10-digit designation called an HTS code, of which there are 18,927. These codes are required to identify products and varieties. Unscrupulous manufacturers seeking to evade our tariffs send the products in with codes which designate products which are not on the tariff list.https://www.wsj.com/articles/the-u-s-china-trade-battle-spawns-a-new-era-of-tariff-dodges-1539009200?mod=hp_lead_pos5

One indicator of the misclassification increase is that there were 146 rulings in July, nearly triple the number six months earlier and this is considered the tip of the iceberg. In one example included in the WSJ article, a wood importer in Oregon received a call from a supplier asking if he would like some Chinese plywood tariff free. The importer asked how this would happen and the response was don’t worry about it as the plywood would not contain any Chinese markings and it would be shipped under some other code.

Diamond saw blades made in China now carry 82% tariffs. In July, two California importers controlled by a Chinese manufacturer tried to dodge the tariff by coding diamond saw blades as grindstonesaccording to Customs. The maker, Danyang Like Tools Manufacturing Co., claimed independent of the California importers but one of them told the agency Danyang was its owner. The California firms have disputed the charges.

The impending tariffs that will be put in place by the Trump administration on aluminium and steel are already being illegally circumvented by some Canadian companies. In the hopes of stopping the smuggling of cheaper metals, the Canada Border Services Agency (CBSA) announced regulatory changes to prevent this type of crime.

Smuggling Concerns

The Prime Minister of Canada has said he was aware of concerns that countries facing the tariffs could try to ship supplies through Canada and then act as if metals had been produced in his country.